ITV Offloads Friends Reunited: Right Idea, Wrong Product

ITV have finally pulled the plug on their foray into social networking. Having invested £120 million in Friends Reunited four years ago, they’ve now waved goodbye to their ailing cash cow for a paltry £25 million.

It comes at a bad time for the broadcaster. With Michael Grade set to depart at the end of the year and no replacement announced, they appear to be a company in turmoil. Today they also announced a half-year pre-tax loss of £105 million, mostly triggered by a 15% drop in advertising revenue. So what have ITV done wrong?

Well, it’s very much a case of having the right ideas but the wrong methodology. Take Friends United; back in 2005 that was the up and coming social networking site. Unfortunately, its popularity waned as the likes of MySpace, Facebook and now Twitter have emerged. Even the 19 million people that are supposed to have joined since it first started is a drop in the ocean compared to what the aforementioned sites receive on a daily basis.

Now ITV, according to an interview with chief operating officer John Cresswell with the BBC, are looking to target online television. But is this too little too late for the company? The BBC with their iplayer have dominated the market for some time and Channel 4’s On Demand service would also provide stiff competition.  With TV recording services such as Sky+ too, the competition is pretty fierce.

However, online television should at least be an industry that ITV know and understand. There may be competitors out there, but if they’re going to succeed in turning around this epic slump ITV need to dig deep and monetise other elements of their business.

There is good news though for ITV though. Whilst they may have slumped 15% in advertising figures for the first half of the year, the industry average is 12%. They also project that by September this will be down to 7%, so the deficit is shortening. But as we mentioned in our earlier blog post, Online Advertising Bucks the Trend, ITV are already £700 million in the red, so losses like this will be hard to swallow for Grade et al.

Another positive note is that Friends United managed to muster £25 million. When the initial reports surfaced it suggested that it could go for as little as £15 million, which would have heaped more woe on the broadcaster.

So what are the lessons to be learnt here? Well if you’re going to invest, do it early and in the right product. ITV bought Friends reunited at its peak, overpaid and have been stung as a result. Even Microsoft and Google have been guilty of doing this to a certain extent with investments in Facebook and YouTube respectively. So many sites flourish and fail, finding those that will boom is very much like unearthing the goose that laid the golden eggs.

With diversified media, caused by the digital television explosion and online viewing, broadcasters like ITV have to move quickly to corner their market and remain competitive. Unfortunately for them, the BBC – a non-commercial television station it has to be said – have been far quicker and more effective at the transition. There could certainly be interesting times ahead for all concerned in the television industry.

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